May 2 (Bloomberg) -- Ethiopia is negotiating with Brazil,
Russia and India to finance and build rail links after agreeing
terms last year with Chinese and Turkish companies for other
routes, the head of the state rail company said.

Russia’s government may fund a 587-kilometer (365-mile)
southern line that will eventually connect with a proposed port
at Lamu on Kenya’s northeastern coast, Ethiopian Railways Corp.
General Manager Getachew Betru said in an April 26 interview.
Brazilian companies could build a 439-kilometer section of a
route to oil-rich South Sudan and India is considering export
financing for a line to a port in Djibouti, he said.

“They want to come and invest in Ethiopia and get their
return,” Getachew said in the capital, Addis Ababa.

Ethiopia, Africa’s second-most populous nation, is building
4,744 kilometers of electrified railway lines at an initial cost
of 110.8 billion birr ($5.9 billion) as it seeks to reduce road-transport costs constraining the continent’s fastest growing
non-oil producing economy over the past decade. Growth may slow
to 6.5 percent this year and next, compared with average growth
of 8.7 percent over the past five years, according to
International Monetary Fund data.

Ethiopian Railways plans to lay more than 2,000 kilometers
of standard-gauge track during a five-year national growth plan
that runs until mid-2015. China Civil Engineering Construction
Corp. and China Railway Group Ltd. are working on sections
costing more than $1 billion each along Ethiopia’s main 656-kilometer trade route from Addis Ababa to Djibouti.

Loan Agreement

Officials from the Export-Import Bank of China will visit
Ethiopia “in the coming days” to finalize a $3.3 billion loan
for the route to the port, including the section inside
Djibouti, Ethiopia’s Foreign Ministry said on its website on
April 29.

Huajian Group, a Chinese shoemaker, said last year it plans
to invest $2 billion over a decade building a new manufacturing
zone on the outskirts of Addis Ababa. The China-Africa
Development Fund has invested in Ethiopia Hansom International
Glass factory and China-Africa Overseas Leather Products, a $27-million tannery, near the capital.

“Ethiopia is land-locked and Chinese factories near Addis
say that transport from Djibouti is one of their biggest
headaches,” said Deborah Brautigam, director of the
international development program at Johns Hopkins University’s
School of Advanced International Studies in Baltimore, Maryland.

Djibouti Route

Freight costs can be as much as three times cheaper by rail
than road along the Djibouti route, Getachew said. The link may
carry goods worth $1.3 billion a year and “break even” after 5
years of operation, he said.

China Communications Construction Co. and China Railway
18th Bureau Group International Co. are working on other
connections in the northeast of the country that has deposits of
the fertilizer potash, he said.

Ethiopia operates a state-led economy and is prioritizing
investment in infrastructure as it seeks to transform one of the
world’s least-developed countries into a middle-income nation by
2025. The decision to use electric trains is because Ethiopia,
which has the continent’s second-biggest hydropower potential,
generates cheap electricity and spends all of its estimated $3
billion annual export earnings on importing fuel, Getachew said.

“If we are investing in renewable energy it’s possible to
use this for other bottlenecks in development like the transport
sector,” he said.

Emerging Powers

Brazil, China, Russia and India are part of the emerging
BRICS group of nations, which have combined foreign-currency
reserves of $4.4 trillion. Ethiopia has been able to attract
investment from those countries because of the “political
will” of former Prime Minister Meles Zenawi and his successor,
Hailemariam Desalegn, according to Getachew.

“The BRICS see in Ethiopia a government that continues to
move forward with a vision for its development, despite the
death of Meles, widely regarded as the chief architect of this
vision,” Brautigam said in an April 29 e-mailed response to
questions. Meles died in August after 21 years in power.

Last year, Yapi Merkezi Insaat VE Sanayi AS, the Turkish
construction company, signed a $1.7 billion deal to build a
railway from the town of Awash, which is on the Djibouti route,
to Hara Gebeya. A $600-million steel mill at Kombolcha town
being built by Saudi billionaire Mohammed al-Amoudi’s company
lies along the route.

Ethiopia will borrow from Turk Eximbank for the project
that will take 42 months, said Yapi’s General Manager Murat
Hasim Koksal.

Foreign Funding

Foreign investors are granted contracts on condition that
60 percent of the funding is provided by their countries
“policy banks” in foreign exchange, Getachew said. Under
Chinese and Indian export-import bank terms, contractors have to
come from the creditor nation and at least half of the project’s
inputs should be sourced there, according to their websites.

While Ethiopia’s external debt of about 23 percent of gross
domestic product is “comfortable,” the foreign and domestic
credit needed for railways and other projects is a “concern,”
Jan Mikkelsen, the International Monetary Fund’s country
representative, said in an e-mailed response to questions.

“On domestic financing, this may result in a further
crowding out of the private sector” by public enterprises that
received 75 percent of commercial bank loans last year, he said.

Major obstacles have been obtaining land concessions for
tracks, designing routes through mountainous terrain, and the
lack of qualified local professionals, Getachew said.